Sunday, 30 December 2018

Too Proudly South African

While reading my latest book (see previous post), I have been forced to think hard about all the biases we fall victim to. One that springs to mind is Home Country bias. 

In short, we overweight investment in our home country. There are a few reasons but the primary one is familiarity. We invest in what is familiar. This is obvious. Others include cost, limited access to other markets and retirement regulation (Regulation 28 in South Africa). 

I wrote about this in August 2016. My own allocation sits about 50% in SA and 50% offshore. Back in 2016, I wrote that South Africa makes up less than 1.2% of the MSCI World Index (basically the world stock market). 50% is a massive active bet. 

I used to believe that you need to fund your liabilities with ZAR. I am not sure if I believe this anymore. Granted many SA-based offshore funds don't pay dividends but you can buy individual stocks or US-based ETF's through Easy Equities and/or Interactive Brokers. Other arguments against are volatile exchange rates, withholding taxes and cost to repatriate. The only one that really concerns me is volatile exchange rate but that is a post for another day. 

The point of this post is: My investment time horizon is over 30 years but I am making a massive bet on South Africa. I am optimistic about South Africa's future but is a 50% weighting relative to (less than!) 1.2% too optimistic?

What about you? Do you know you global asset allocation? Chances are that if you have only an RA and company pension fund, it ain't over 25%! (You have Regulation 28 to thank for that).